Lyrics: Robert Hunter
All I know about this is a reference in Dennis McNally's book "A Long Strange Trip":
The final straw came over the song that Weir had been working on the previous summer as Eileen Law had given birth. Hunter had produced a piece about gambling he called "Blood Red Diamonds", and Weir didn't think it worked for the tune. When he rejected it, Hunter concluded it was time to move on. [p393]The song Chingo contains the line "Great big stars like blood red diamonds" but I don't think there's any other connection between the two songs: Robert Hunter says Chingo was written in 1986, whereas the Dennis McNally passage refers to 1971. But it's always possible Hunter recycled some lines.