Your car uses the 91 and later wiring scheme, so it is the gray/red wire. The wire changes color,
one part of it is black/white/ the other is gray/red. The color change may be at the 10 pin connector junction.
Diagram courtesy of Tmoss & Stang&2birds
The temp gauge problem is either a bad sender or a bad power ground between the engine block and the frame.
The engine temp gauge sender is a single wire sensor on the driver's side lower intake manifold.
The temp gauge sender isn't connected to the computer, so it uses a separate ground from the SIG-RTN.
The engine block is the ground for the temp gauge sender.
The SIG-RTN and engine power ground are two separate and distinct circuits: don't confuse them.
They serve different purposes and and go to different things.
Here is some more information about power grounds:
The secondary power ground is between the back of the intake manifold and the driver's
side firewall. It is often missing or loose. It supplies ground for the alternator, A/C compressor
clutch and other electrical accessories such as the gauges.
Any car that has a 3G or high
output current alternator needs a 4 gauge ground wire running from the block to the chassis
ground where the battery pigtail ground connects. The 3G has a 130 amp capacity,
so you wire the power side with 4 gauge wire. It stands to reason that the ground side
handles just a much current, so it needs to be 4 gauge too.
The picture shows the common ground point for the battery & alternator
Picture courtesy timewarped1972
See the following website for some help from Tmoss (diagram designer) & Stang&2Birds (website host) for help on 88-95 wiring
http://www.veryuseful.com/mustang/tech/engine/ Everyone should bookmark this site.
Ignition switch wiring
http://www.veryuseful.com/mustang/tech/engine/images/IgnitionSwitchWiring.gif
Fuel, alternator, A/C and ignition wiring
http://www.veryuseful.com/mustang/tech/engine/images/fuel-alt-links-ign-ac.gif
Complete computer, actuator & sensor wiring diagram for 88-91 Mass Air Mustangs
http://www.veryuseful.com/mustang/tech/engine/images/88-91_5.0_EEC_Wiring_Diagram.gif
Vacuum diagram 89-93 Mustangs
http://www.veryuseful.com/mustang/tech/engine/images/mustangFoxFordVacuumDiagram.jpg
HVAC vacuum diagram
http://www.veryuseful.com/mustang/tech/engine/images/Mustang_AC_heat_vacuum_controls.gif
TFI module differences & pinout
http://www.veryuseful.com/mustang/tech/engine/images/TFI_5.0_comparison.gif