Can "gem install" be configured to install executables outside /usr/bin/ by default?

I'm adding this as an answer so that it is obvious when I run into this problem again :)

First, move all the bins in /var/lib/gems/1.8/bin/ to /usr/bin/. If you don't do this, then uninstalling or updating a gem will not remove the binary from the original bin directory.

You may also wish to remove the old path from $PATH

Next, edit ~/.gemrc and add (or update) the following line:

gem: --bindir /usr/bin

This overrides gem so that it always uses /usr/bin/ as the bin dir.

No need to update the path (especially messy for multiple-user machines).

See http://www.rubygems.org/read/chapter/11 and specify a ~/.gemrc which defines a gemhome variable.

For example:

gemhome: /usr/local/rubygems

You can also place this file in /etc/gemrc

Alternatively you can set the GEM_HOME env-variable:

$ export GEM_HOME=/tmp/gemtest
$ gem install bundler
$ ls /tmp/gemtest/bin/
bundle

Update (10 years later):

Andrey Rodionov below suggest using

gem: --bindir /usr/bin

On OS X, the executable directory is overridden to /usr/bin in the file /Library/Ruby/Site/1.8/rubygems/defaults.rb

# The default directory for binaries
def self.default_bindir
  if defined? RUBY_FRAMEWORK_VERSION then # mac framework support
    '/usr/bin'
  else # generic install
    ConfigMap[:bindir]
  end
end

As a hackish work around, I changed /usr/bin to my desired bin location, which works correctly. There doesn't seem to be any way to override bindir from the ~/.gemrc config?