I thought about the gauge being faulty also, but the resistance of the sending unit goes up with gauge movement. If the sending unit is telling the gauge to go higher, and it is, I think I can rule that out.
As for moving the sending unit, is there any problem with moving it to the back of the intake? I have an Edelbrock RPM Air Gap intake and there are ports at all four corners.
I will try the thermostat hole though. I have heard of that before but I didn't think it would change this problem.