Hello.

If the water temp gauge isn't doing it also, that would be something between where the yellow wire leaves the back of the gauge and the float of the sending unit. It probably isn't the float, since they normally either float or don't float. I never saw one with variable buoyancy.

Typically, a sending unit will be consistent in it's reading. It might be wrong, but it will always tell the same lie every time. That leaves the wire itself. It could be making poor contact at the sending unit or the gauge because of corrosion or something, or it might have a bad spot somewhere along its length that grounds itself out on the car occasionally as it gets bounced around going down the road. I would start by checking the wire. Again, this is all with the assumption that the water temp gauge isn't doing that also.
