I tried using the attached image option and thought I would be able to drag the image into place but this didn't work.
Is it possible to do insert inlined images directly on Gmail?
Workaround:
To send a photo on Gmail using the Android app:
Save the photo that you want to send to a local folder on your phone.
While composing a message or reply, tap the attachment paperclip icon () at the top of the Gmail app and select "Attach file" from the menu that appears.
Select the photo that you want to send from a local folder on your phone. This photo is sent inline. If you selected a photo from anywhere else except for a local folder on your phone it would be sent as an attachment instead of inline.