It might be the very beginnings of pairing up, though there is really nothing based on the picture or description that would say anything definite about this. I would say, if they are pairing up, they couldn't be too far in the process as their is generally a noticeable change in color shortly after pairing up. Based on the picture, the one in front is clearly not in breeding coloration, nor does it appear the other is either. Though sometimes the pairing up process happens very rapidly and eggs come with in a couple days.
I've had jewels off and on since the 1970's and have bred them many times every single decade since. Well over 50 times. IME, given some shelter, they will lay their eggs under shelter rather then more out in the open. Even placed in their own tank with out tank mates, they will choose shelter probably something like 19 times out of 20. This info of jewels laying their eggs more out in the open, is out dated info from the 1950's and has been reiterated ever since (probably stemming from somebody breeding them in a more open tank, where they simply did not have a choice and jewels being jewels will lay eggs regardless of how decor is set up).
And yes, if there is substrate, they will most often dig a pit, to place their wrigglers after the eggs hatch. Usually done before eggs are laid, though it is possible that they dig the pit after the eggs are laid. But the first step after pairing up is to claim a small area. You would begin to notice them defend a territory usually a number of days before they actually breed.
As far as determining their sex, a couple good side shots would probably do the trick. Male and female have different body shapes and sometimes shows up on pictures (has to be good direct side shot) though is usually much easier in person.