Temprature Problem

I have a hypertech stage 3 chip in my '86 TA, I also have the 160 degree thermostat and the cold fan switch the fan turns on at 177 off at 166 as recomended by hypertech. Ever since I did these mods the has never indicated any temperature at all it just stayed below 100 all the time and the fan stayed on none stop. I never really let it bother me. Receantly I had to unplug the fan switch while doing some work. After plugging it back in and starting the car the fan did not come on, So I figured I would watch to see if the temp gauge indicated any temperature increase. After about 5 or so minutes of idle, the temp gauge all of the sudden snaps up as high as it can possibly go and the fan instantly turns on. I of course instantly shut the car off.... Now the strange thing is the needle goes way past the numbers on the gauge but an educated guess according to the icrements of temp increase in the guage tells me that the gauge is saying the temp is around 315-320 degrees obviously extreme. But the motor is not smoking and I can easily touch the intake manifold and other parts that would be boiling if the actuall temp was 320. So does anyone have any ideas I'm assuming that its the coolant temp sensor but was wondering if anyone else ever had a similar experiance. Someone also told me it might be the gauge... Any help appreciated, thanks TOM