Since I have the same B&M gauge as you have, I remembered it coming with some instructions. I looked them up and on the "troubleshoot" section, this is what they say:
Reading too high -Power and ground wire reversed
Needle goes to extreme right -Lead to sender assembly accidentally grounded
this is the link of the PDF for the B&M gauge set:
http://static.summitracing.com/global/images/instructions/bmm-80212.pdf
I think since you're messing with the sender anyways, and also will need to take out the gauge (to replace it), it won't be a bad idea to double check all the wires (maybe they touch somehow in the gauge, or probe, or somewhere where you didn't see?), in both sender and gauge. The way I grounded my sender probe was to insert the ground wire in between the probe coupler (that mounts on the T-fitting and the probe screws in it) and the probe, so coupler (tight and sealed) in the T-fitting, then a 1/4 washer that stops on the coupler neck, then the ground wire soldered on an eyelet, then another 1/4 washer, then the sender, so the ground wire eyelet is very tight on the whole assembly by those 2 1/4 washers when you tighten the probe in the coupler. Then, I drilled a hole in the jeep chassis where I attached the ground wire. Good luck, I am curious if that ends up being a bad wiring or the gauge.