Oil Pressure gauge freaking out

The oil line comes off the back of your engine, where the electrical sender used to be, and then goes to the gauge. Obviously it is open at the engine end (to allow oil pressure into the line), but at the gauge end the line goes into the bourdon tube in the gauge, which is sealed. The pressure of the oil expands the bourdon tube in the gauge which in turn moves the needle. As no air cannot enter the line at the gauge end, the oil cannot "drain back"into the engine, much like if you draw liquid into a straw and then put your finger over the end of the straw the liquid cannot drain back out.

The point of this all is that air which is trapped in the line to the gauge is compressible and can contribute to needle bounce.

The first step to do is bleed the line with the engine running, and tighten the fitting back up with it still running. If you still have needle bounce try a different gauge. You can also try hooking the gauge directly to the engine to see if the needle bounces there.