We report on the observations of extremely strong and fast cubic optical nonlinearity in the suspension of gold nanoparticles in nematic liquid crystal (LC). The nonlinearity was observed by recording dynamic phase sinusoidal holograms with a continuous operating laser. It is caused by changes of the refractive index of a LC due to efficient light-induced heating of the nanoparticles at plasmon resonance excitation and following thermal transport of heat to LC matrix. Large nonlinearity parameter (n(2) similar to 10(-2) cm(2)/kW) and fast characteristic times, together with excellent photo- and thermo-stability of the system make its extremely promising for optical processing applications.