How do you reply gracias mi amigo?

First of all, you don't say "muchos gracias", you say"muchas gracias". "Gracias" is a feminine Word in spanish that means "thanks".

It might depend on context of the conversation, but, "muchas gracias" means "many thanks." The most common way to respond is "de nada" which means "of nothing", in other Words:"it was nothing". It's normally interpreted as "you're welcome." in most conversations.