There is a possibility that the stock gauge (0-30 psig?) could have been damaged when the engine first started and pegged the gauge. What year is your 261? The 1954 261 should operate at 45 psig hot at 1200 engine rpm. The 1959 261 should run at 30 psig at 1200 rpm, also hot. Cold they should be in the 45-60 psig range. I'm not sure when the change was made. Check this link for specifications for other years. I would try running the engine with a 0-60 psig gauge that is known to be fairly accuarate before any drastic action is taken.

Hoyt