However, his starring role as Rafa Benitez's side enjoyed a bright start to the season prompted the Magpies to make him a permanent signing on a five-year deal in October.
Merino was decisive on Saturday as Newcastle beat Crystal Palace 1-0 thanks to his 86th minute goal.
Elliot is delighted to have the Spain Under-21 international as a full member of the squad, but expects him to attract big offers if he stays on his current form.
"It’s brilliant news he’s signed permanently - it’s great for the club that such a talented young player has committed himself," he told Chronicle Live.
“He’s very, very good. You can see from his performances the talent he has. There’s no reason why he can’t go on to play at the very top. I certainly see no reason why not.
“At the moment he is our player and we have to make sure he takes us to the top. We’ve now got a brilliant bunch of midfielders and one of them is having to miss out every week.
“I certainly see [Merino] in a bracket where clubs like that [Real and Barcelona] come into it, considering his age.
“It’s only a matter of time before the very top clubs come looking at him, but we want to be a top club, too.
“We want him to stay here, we don’t want to see any of our top players up for sale again. That is the mentality now. We bring them through, the manager is here.
“He’s a fantastic signing from the manager and the scouting department and hopefully we’ll just see him develop as a player and he fulfils all that potential at Newcastle.”
Newcastle are currently seventh in the English top-flight and pay a visit to Burnley in their next game.