Bale has been linked with a move away from Tottenham for some time with Real and Manchester United just two destinations that have been mooted.
Reports linking the 23-year-old with a move to the Bernabeu have been relentless with former France international Zinedine Zidane describing him as one of the top three players in the world last month.
Modric played with Bale at Tottenham before moving to Real last summer and thinks the player would fit seamlessly into the team.
The Croatian told Marca: "Since Madrid is the team of the galaxy, Bale would fit perfectly, we could really use him.
"He would give the team another dimension. His shot, his strength, his speed, his offensive power.
"He is the type of player who will help us take a step forward."
He added: "It is a complicated issue for me because I was with Tottenham. I can tell you we're friends and he is an exceptional player. I guarantee it.
"And whether the club is Real Madrid, Tottenham or another, they can only win if they sign a player like that.
"If it is Real Madrid, it's better for us."