Crazy Temp gauge
 

Perhaps someone has experienced something similar and can help. The temp gauge on my 92 400E 122k miles is going crazy whenever the needle approaches the 100 degree mark. It then goes all the way up above 120 and after a while suddenly drops back to a little a bove 80 and then up again etc. No sign of boilover or so when I stop and take a closer look at it, even though the needle shows above 120 degrees. I am still worried though, as I wont know when it really overheats, if it ever does.
I replaced temp sensor, thermostat and followed Benzmacs advice and replaced the injection wiring harness which includes the cables to the sensors as the insulation was getting really brittle on that one. No change, though. Also, when at stop and idle the temp needle moves quite consistently a bit with the RPM needle for a brief period once I accelerate. The fuel guage goes crazy from time to time too, but I guess thats unrelated?!
Am I looking at a slowly failing waterpump or something? Could it be that for some reason a pocket of hot air/steam collects around the sensor leading to an extorted coolant temp reading?
I am also suspecting a bad cat. Could that be somehow related? Or am I just looking at an electical issue that has to be traced out?
Any advice is greatly appreciated. Thanks a lot in advance!
F.J.