I had the same problem....you have to ground the gauge itself and put a ground from the sending unit itself to bare metal in the direct vicinity of the sending unit. I used a worm clamp to secure the ground wire to the brass T-fitting the sending unit screws into and then grounded it about 1 foot away below my radiator. This took me a few days to figure out but it works great now. Basically, you have to have two grounds...one for the gauge, one for the sending unit.
Here's a pic....it isn't recent enough to show the ground on the sending unit, but just run a wire so it comes into contact with the brass t-fitting and make sure it grounds as close as possible to the sending unit.