Generally when I'm close and still can't see the cache, I grab the bearing and distance off my GPS and mark it out with my compass. Since my compass points to magnetic north, the only way to be accurate is to also have my GPS showing bearings based on magnetic north. If this is what you intend to use your compass for, then your answer is to use magnetic north.
True North you would want to use if using your GPS in combination with a map. I don't even do this though; it's easy enough to just turn the map around so N on the map lines up with N on the compass and then North is North no matter how you look at it, without worrying about declination. Unless you are in a canoe, or any other situation you can't lay the map flat.
Of course, if you are talking about using a magnetic compass that's built into the GPS (seems that way, with the "dance" comment) then I guess the electronic compass in your unit can automatically accomodate for declination? In that case, might as well be True North because then your GPS, compass, and map will all agree.
All depends on what you really mean, I guess. More Clarity. I would suggest that if your case is as in the paragraph previous to this one, set your GPS to Magnetic and buy a real compass.