The normal scenario for sudden temperature increases & drops is a big bubble of hot gas accumulating at the highest point - water elbow where the sensors sit. The standard temperature gauge is normally very slow & insensitive so by the time that moves above the 'normal' position you have a serious problem. Normally it's a fast aftermarket gauge that shows the issue while the standard gauge stays where it is.
If your aftermarket gauge is in the hose, it is likely to be immersed in the coolant with just bubbles passing by, so will probably not show the problem.
It is possible that it's a gauge fault, but if it co-incides with gas blowing out of the cooling system it is very likely it's head gasket or cracked block (latter more common on 205). Header tank setups are very efficient at removing gas from the system quickly without coolant loss wheras the standard setup blows it's coolant out the first time you boot it then stays overheating.
You can confirm a gauge fault by connecting a multimeter on volts across the ECU sensor (splice into wires) as this will show the same overheat if it's happening. Read the voltage once up to temperature then give it some welly and see what the voltage drops to during the overheat. I can translate voltage to temperature for you.
I currently have this happening in my 205. The standard gauge doesn't move but my aftermarket gauge (connected to ECU sensor) goes up to 120 odd degrees every time I put my boot down then drops straight back down again. In my case it's also losing coolant without having any leaks.
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