William Bernstein, the author of The Four Pillars of Investing, is of the opinion that a small allocation to gold equities, say 2% provides valuable diversification benefits. His argument is that the allocation is small enough not to hurt returns when gold equities have poor years but in good years, gold equities tend to go up a lot especially when other asset classes are having poor returns.
Bernstein's recommendation is for US investors and I wonder if it is applicable for Canadian investors as the TSX has a healthy exposure to gold and other commodity equities.
I would not replace real return bonds with commodity stocks because although there is a high correlation between commodities and inflation, it is not perfect. Real return bonds, on the other hand, provide a close to perfect hedge against inflation.