Yes, the gauge should peg out when the sender wire is grounded. That's how the gauge works, it reads the resistance to ground. Inside the sending unit is a variable resistor between the terminal and the case of the unit which is grounded. Less resistance, high reading, more resistance, lower reading.
What you want is for everything to be well grounded, the engine, frame, cab, etc. Usually there are numerous ground wires, especially where there are rubber mounts. If you can't find a ground wire, make one, can't hurt to have extras.
Examine the wire harness carefully, especially where it was chewed. The ground could be broken or the other wires could have shorted and burned the ground into.
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