Water Temp Gauge Problem

I got a 1997 Freightliner FLD day cab, 12.7L S60 Detroit. Last few days the water temperature gauge needle will randomly drop and/or spike and just bounce all around, then settle back to normal operating temperature and then properly work. The engine is not actually overheating or cold, this happens during normal operating temp and normal driving. Today it spiked to the red zone on the gauge and set off the check engine, shut down, and water temp warning lights and buzzer on the dash, but only for a few seconds before the needle fell back down.

Is it the water temp sensor going bad? Or the gauge itself? Is the water temp sensor the one on the top of the block right under the head under the valve cover? or where is it? also, will coolant come spewing out if i take out the sensor to replace it? do i need to drain some?

I flicked on the jake and noticed it made the gauge do the thing for a little. not sure if it was a coincidence or if they problems are somehow related

Thanks

Edit: When the gauge is doing its glitch thing, if it goes up to around 200 (the real temp is still at normal) it will kick on the fan as it is set on auto.

 

Thanks for the reply.

my water pump was leaking real bad, so I bought a new one and replaced it along with all new hoses about a month ago and the truck has been running fine and pump works great since. Engine does have a small head gasket leak that leaks some coolant out on to the block, it's miniscule, I only add like a half gallon of coolant/water once every 3-4 weeks. and that's cuz I want to, not cuz it needs it.

I also had to replace the oil pressure sensor about two months ago cuz that went out (when i would pop it in to neutral and the psi would fall cuz it goes to idle, the gauge would show it fell more than normal, and would send off the lights and buzzers..very annoying...that's why i kinda think its the water sensor, it sends off the lights and buzzers, and i just replaced a sensor...so maybe its time for this sensor...i mean, the truck is 15 years old, nothing lasts forever.

also, i used the jake brake all day today and the gauge never did it's thing. so nevermind the possible connection between the two...i think the sensor just may be on it's way of going out? truck ran perfect today and it never did the glitch