Why is it showing gray? 

A common cause of end-grain stain is that fine sawdust is getting caught in torn grain.  What color is your sandpaper?  Sometimes the stain is similar in color to the sandpaper you are using.  So the first suggestion is to make sure that you don't have torn grain.  Try scraping, or better yet, shear-scraping to improve the surface.  Or start with a coarser grit of sandpaper.

Another cause could be that you are holding the bowl in place using a metal fixing that is being sanded at the same time as the wood, and dust from sanding the metal is being transferred to the wood.  The is a common problem faced by pen turners who use mandrels and bushings.

But if the stain is a mineral stain in the wood, there's not much you can do about it.