If the fan is coming on the water in the rad is hot, as that's where its sensored. The dash gauge is sensored on the black sensor on head outlet. You may have a duff reading dash coolant sensor and all else is fine, or you have an airlock or flow problem with hot rad and cold head. Does the lower hose stay cool until stat opens or does it heat up as quick as top hose (meaning stat isn't working). Does the small hose into top of coolant bottle produce a steady flow of water when engine running?