Not sure what happened but when I upgraded to Mavericks it says that Rails it not install. I executed the following command:
rails --version
You need to install the Command Line Developer Tools. Just open Terminal and type up a command that requires it -- for instance, git, gcc or make. Or use the following command:
$ xcode-select --install
You'll see an alert like this:

Just click Install and that's it. As of OS X 10.9, there's no longer need to install Xcode for Ruby development.
Credit for the steps and picture goes to Daniel Kehoe in his latest guide: http://railsapps.github.io/installrubyonrails-mac.html