Rango is an actor who has lost confidence in his abilities (“I’m a fraud”) trying to help the town find water. In this scene, the missing water, and Rango’s lost confidence are symbolically linked.
The Spirit of the West, with his large collection of Oscars, is a very successful actor who represents Rango’s full potential. The fishhook shows that people once fished out where the Spirit was prospecting and there must have once been plenty of water, despite the place now being a dry desert. The metal detector shows that the Spirit is wise and knows how to find hidden things, unlike Rango who is still learning (“I don’t even know what I am looking for anymore”).
While picking up the fishhook, the Spirit gives Rango the advice “sometimes you gotta dig deep to find what you are looking for,” telling Rango not only how to find the missing water, but also how Rango can find his own lost confidence.