You're measuring the pressure of the air compressed in the combustion chamber. Since air is less dense at elevation (lower mass for a given volume), the molecules of air aren't compressed as much, which equates to lower reading on your compression gauge. Same general idea as why NA engines make less power at elevation.Correct me if I am wrong but I believe elevation and barometric pressure should have nothing to do with the compression results on the gauge. You are measuring gauge pressure and not absolute pressure here. If there is less air pressure pushing into the cylinder at higher elevation, there is also less external pressure exerted on the Bourdon tube of the compression tester. They cancel each other out and it is a simple multiplier of volumes of air.
Gauge pressure is just zero-ing your reference pressure in this case since it isn't a closed system. If it were a closed system like hydraulics or water pressure, you would be right.