Gold is negatively correlated to the dollar. Central banks have been heavily favoring the dollar as a reserve asset since 1995. Another reason that the price of gold is low is that competing investments have performed well. Stocks and bonds have produced returns for investors over the past several years. This has given both individual and institutional investors little incentive to move to gold.
Gold is negatively correlated to stocks and bonds, so it makes sense that the price of gold is low.
However, it does not make sense for investors to ignore gold because problems exist in the world that could weaken the dollar and erode the value of stocks and bonds. If the dollar was not strong, central banks might not be selling gold. In fact, there is a strong possibility that some Asian central banks will add gold to their reserves in the future since gold held its value when their currencies collapsed in 1997 and 1998. The chart shown below from CPM Group shows central bank gold transactions from 1960-1999. Notice that central banks were net buyers of gold as recently as 10 years ago.